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Global Logistics: The resurgence of emerging markets

The recovery in Asia’s rapid growth markets, especially those of China and India, is gradually leading the world out of recession. In many developing economies, output is already above pre-crisis trends and logistics investment is vigorous—suggesting that expansion is under way.

“Shippers must align goals in Mexico and other countries for the both the long-term and short-term. That means that they must develop a mutual understanding of value chain goals, as well. In other words, there is no single solution. Each emerging market demands a customized logistics strategy.”
— Ed Fieitzinger, president of contract logistics and distribution for UTI

By Patrick Burnson, Executive Editor
February 01, 2013

Technology advances support growth
It comes as no surprise that “cloud” technology is helping small- to medium-sized businesses penetrate the emerging marketplace. TradeCard, which recently merged with industry innovator GT Nexus, announced recently that purchase order volume on the TradeCard Platform reached $32 billion in 2012—a 47 percent increase over 2011.

Growing trade volumes in emerging sourcing hubs such as Vietnam, Indonesia, Bangladesh, Sri Lanka, Thailand, and Malaysia largely drove the increase.

“We’re seeing rapid growth in trade flows into Southeast Asia,” says Sean Feeney, TradeCard’s CEO. “We just recently opened an office there to support our growing business, and we’re seeing some big numbers on business volume in Vietnam crossing our platform.”

According to Feeney, more than 418,000 orders, valued at $2.7 billion, moved through Vietnam on the TradeCard Platform from January 1 through October 31, 2012—92 percent increase in order volume versus full year 2011. Using TradeCard, 304 suppliers in Vietnam processed 639 million items and 494 million cartons during this time period.

Alexis Karklins-Marchay, co-leader of the Emerging Markets Center at Ernst & Young, notes that even with the introduction of new technology, slower expansion in the rapid growth markets (RGM) is likely this year. However it will “only be a blip” before returning to significant growth towards the end of the year.

“Soaring domestic demand in economies starved, for some time, of investment and consumption will offer business exciting new markets for goods and services in the years ahead,” says Karklins-Marchay.

As well as having the option of easing fiscal and monetary policy to accelerate growth, rapid growth markets are also fortunate enough to have a growing middle class with increasingly higher incomes and an appetite to spend.

Proximity matters
Ernst & Young’s quarterly Rapid Growth Markets Forecast noted that the number of households in RGMs enjoying higher incomes will grow sharply over the next ten years. In that time, the number of RGM households receiving an income of over $30,000 will more than double, reaching 149 million by 2020, overtaking the U.S. and the Eurozone.

The growth in household incomes, contends Ernst & Young analysts, will naturally lead to increased consumer spending. Up to now, two-thirds of consumer spending across the world has come from the advanced economies, with the remaining third coming from the emerging markets. However, in 25 years time, emerging Asia alone will have overtaken the advanced economies as the key source of consumer spending, responsible for almost 40 percent.

“Consumer demand from RGMs will eventually replace the advanced economies as the key driver of global growth,” says Karklins-Marchay. “The shift in import demand should also assist in rebalancing the economy.”

The rapidly growing Asian countries are enjoying more prominence in the world economy, and this places greater importance on the role these countries must play in efforts to rebalance the global economy. Those countries that have run surpluses in recent years must adjust their growth patterns toward more reliance on domestic demand and should allow greater exchange rate flexibility.

“Rebalancing Asian RGMs will not only make the world economy more stable, but will also help the Asian countries themselves, making higher growth rates more durable,” says Karklins-Marchay.

Walter Kemmises, chief economist for transportation engineering company Moffatt & Nichol, agrees, noting that rising wages in China make South Asia more attractive for outsourcing. “But U.S. shippers should consider Mexico as a sourcing point for consumers in both North and South America,” he says. “With a shortened supply chain, the savings can be considerable.”

Third-party logistics market analyst firm Armstrong & Associates make a similar argument in their recently released report, Mexico: Trucking, Railroads and the Third-Party Logistics Market.

“Automotive logistics has grown dramatically in Mexico since 1994,” says Dick Armstrong the company’s chairman. “There are 25 automotive assembly plants spread out from Mexico City north, and there are now over 1,000 Tier 1 and Tier 2 suppliers located in Mexico. Over two million automobiles and light trucks will be exported from Mexico in 2012.”

The major companies in Armstrong’s Top 45 list include TUM, Jaguar, TMM, Trans-Mex (Swift) and Ryder.

Mexico’s $68 billion trucking industry is now lead by 10 companies with revenues ranging from $90 million to $220 million. The largest, Autotransportes de Carga Tres Guerras, handles general freight including less-than-truckload and packages.  Power is supplied by 563 tractors and 93 straight trucks.

Other significant U.S. and international companies play important roles in Mexican logistics. For example, DHL/Exel, Werner, and Ryder are heavily involved in value-added warehousing, transportation management, and trucking in the region. APL/VASCOR, Kuehne + Nagel, and Menlo have also carved out significant third-party logistics niches in automotive, tires, and high-tech. Kansas City Southern and Ferromex (UPS) are the major railroads, while intermodal and car hauling are important and growing service lines.

However, Ed Fieitzinger, president of contract logistics and distribution for UTI, observes that technology and proximity can only achieve so much if local expertise is not fully implemented.

“Shippers must align goals in Mexico and other countries for the both the long-term and short-term,” says Fieitzinger. “That means that they must develop a mutual understanding of value chain goals, as well. In other words: There’s no single solution. Each emerging market demands a customized logistics strategy.”

About the Author

Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).

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